Mr Nghia said:

Other countries all use the CPI to measure inflation, and they always compare the CPI of the same periods in different years, while not comparing it with the beginning of the year. Keeping prices stable is always seen as the medium-term goal. I don’t know many countries in the world which show a relationship between the inflation rate and the economic growth rate. I don’t think for other countries in the world, it would be fine to keep the inflation rate lower than the GDP growth rate, while the targeted economic growth rate is relatively high.

This means that we are following a loosened monetary policy. The policy may help stimulate the national economy in the short term, but you should realise that it could make the economic growth rate lower in the medium and long term. The high inflation rate will lead to a higher interest rate, lower investment and worsen investment efficiency.

In Vietnam, if the interest rates keep rising, bank loans will flow into big enterprises, and big state-funded projects. As a result, small- and medium-size enterprises will find it hard to access bank loans. The inflation rate of 8.4% in the first seven months of the year was high if compared to the average level in the world and the region (2.5-3.5%).

What were the causes of the high inflation rates?

The root cause of high inflation rate is always monetary problems. Some people attribute the high inflation rate to the so-called ‘push cost’ (input material price increases, leading to the increase of many other goods items – reporter). However, the main reasons might be either the increased money supply or decreased GDP.

I think that in Vietnam, the high inflation rate over the last time was because of the increased money supply. The capital has come in big quantity in the last time, forcing the central bank to buy foreign currencies in order to keep the exchange rate on the right track, aiming to encourage exports and investment.

Every country which follows the target of stabilising the exchange rate has to do that. It also has to issue government bonds and central bank bills of exchange in order to withdraw surplus cash from circulation. However, our actions still have not brought the desired effect due to the technical problems in the implementation.

What would you comment about other measures like controlling goods prices or lowering import taxes?

In Vietnam, controlling prices always aims to two goals at the same time: fighting against monopoly and fighting against inflation. However, in theory, no one can fight against monopoly by controlling prices.

Therefore, I think Vietnam should remove the monopoly, and encourage competition in order to stabilise prices.

I think the control over prices would only show temporary effects. Prices would keep rising until the total demand is higher than the total supply, despite any measures of controlling prices.

The tax cuts would also show the same scenario, but the undesired effects of the move would be more serious. It is clear that this would cause losses to the state budget; besides, this would raise the trade balance and current balance deficit and then put hard pressure on exchange rates.

What should the state do in the immediate time, then?

Big capital flow and pressure on inflation is a normal thing for every emerging economy. In the future, foreign capital will keep flowing into Vietnam and the financial market of Vietnam will get bigger in scale.

The policy of ‘neutralising money’ (withdrawing the money supplied to buy foreign currencies from circulation) will be the measure to be applied regularly. The central bank and the Ministry of Finance should cooperate with each other more closely in this job.

The central bank should not abuse bond issuance as the bank will have to pay high interest on the bonds it issues.

Source: Lao dong.